This essay examines the key mechanisms that governments use to restrict or facilitate international trade. It explores how the relative strength of the U.S. dollar influences import and export volumes, and how trade barriers such as tariffs and import quotas function as policy tools. The paper outlines the rationale behind protectionist measures — including defense of domestic employment, protection of infant industries, and strategic industry preservation — while also acknowledging their costs: higher consumer prices, reduced competition, and diminished economic growth. The essay concludes that, on balance, free and unrestricted trade produces better outcomes for the global economy.
This essay discusses high tariffs and quotas and their effects on restricting trade with foreign countries. It also examines the strength of the U.S. dollar and its effect on international trade.
How strong the dollar is relative to other currencies has a direct effect on trade between countries. A strong dollar allows U.S. consumers to buy more goods and services for the same amount of money because foreign imports cost less. However, a strong dollar can also lead to lower export totals abroad because U.S. goods and services become more expensive for foreign buyers. Government policies affect the strength of the dollar and how affordable U.S. exports are in foreign markets (Acevedo, 2010).
Unrestricted trade between countries increases the variety of goods that domestic consumers can buy. The increased competition that comes from unrestricted trade also decreases the cost of those goods. Free trade also allows domestic industries to sell their products in foreign markets. Even though free trade appears to be beneficial, not everyone agrees on its advantages and disadvantages (Radcliffe, 2012).
Tariffs and quotas are tools that a country can use to restrict trade. A tariff is essentially a tax that increases the price consumers pay for imported goods. Import quotas are another type of trade policy instrument. They restrict the quantity of a particular good that can be imported, which also limits competition and raises the prices consumers pay (Radcliffe, 2012).
"Jobs, infant industries, defense, and retaliation justify tariffs"
Governments also use trade barriers to protect industries considered strategically important, such as the defense sector. Tariffs may further be used in retaliation when a country believes its trading partner has acted unfairly or has acted against the government's foreign policy objectives (Radcliffe, 2012).
To sum up, tariffs can have both positive and negative effects: they protect jobs and increase government revenues, but they also raise prices and create economic inefficiency. Likewise, quotas may raise prices by creating shortages that lead to expanded domestic production, yet consumers ultimately pay more and the broader economy suffers. On balance, the world economy as a whole is better served by free, unrestricted trade.
Acevedo, L. (2010). What determines the strength of the dollar? Retrieved March 14, 2012, from http://www.livestrong.com/article/121415-determines-strength-dollar/
Radcliffe, B. (2012). The basics of tariffs and trade barriers. Retrieved March 14, 2012, from http://www.investopedia.com/articles/economics/08/tariff-trade-barrier-basics.asp
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